An Empirical Analysis Of Zhejiang's Terms Of Trade

The Terms of Trade is the exchange rate between one country and the others, which is the rate of the price of exports relative to the price of import. It is an index of one country's welfare in trade, including NBTT, ITT, SFTT, and DFTT. Not only does it reflect the gains of international trade, but also the export competition of one country.One country would suffer the deterioration of the terms of trade and Immiserizing Growth if it ignores the influence of the terms of trade to its economy in the global economy and fierce international competition. Hence, it is necessary to highlight the changing trend, volatility and the influencing factors of the terms of trade to keep the healthy and rapid development of both national economy and international trade.China is one of the largest developing countries in the world with a rising image in the international market since the Reform and Openness. International trade becomes more and more important in our economic development. And Zhejiang is the most open province in East China, whose import and export rank the fourth of the nation, while the trade of it ranks the first, also do the "made in Zhejiang" products. Therefore, it is essential for us to research the Zhejiang terms of trade.We investigate and analyze the terms of trade from 1995 to 2005 in Zhejiang in the methods of International Economics and Statistics. The terms of trade conclude NBTT, ITT, SFTT, and DFTT of the whole trade, while also take primary goods, manufactured goods, agriculture goods, labor-intensive goods and capital-intensive goods into account, measuring the volatility by Hodrick-Prescott.Then, we examine the influencing factors on the changes of Zhejiang's terms of trade by Principle Components Analysis, which contain economic development, the nominal exchange rate, domestic market scale, foreign capital actually utilized, per capita consumption, employment, R&D expenditure, real income, private savings and infrastructure expenditure.Furthermore, we prove whether there is Immiserizing Growth in Zhejiang, based on the preconditions, the terms of trade and international competitions.According to a systematic analysis, we get the following basic results.The trend of Zhejiang's terms of trade consisted two parts—it grew up sharply, and maintained steady increase after the fall of 1998.The improvement of NBTT resulted from the falling degree of import price index greater than it of export price index. The export quantity index dropped a little in 1996 and 1997, but increased rapidly after then, which led to the improvement of ITT. Zhejiang's SFTT enjoyed an increase always and Zhejiang's DFTT took advantage over America and Japan respectively.The NBTT of primary goods improved only in 1998, with a long-term deterioration. The NBTT of industry manufactured goods increased significantly from 1995, and also fell from 2001. The NBTT of labor-or-resource-intensive manufactured goods also showed the two-stage character: improving from 1996 to 2000, and decreasing largely from 2001. The NBTT of capital-or-technique-intensive manufactured characterized as an improvement divided by 2001, with an exception of 1996.It was the entry of China into WTO that has changed the trend of the categorized NBTT. It showed that the entry influenced more significantly on industry manufactured goods and labor-or-resource-intensive manufactured goods, while the NBTT of capital-or-technique-intensive ones improved following several fluctuations.The volatility of ITT of primary goods was obvious with an entire improvement. The ITT of industry manufactured goods increased significantly from 1996 to 2000, and also fell from 2001. The ITT of labor-or-resource-intensive manufactured goods also increased from 2001. According to the fluctuation of price, the ITT of capital-or-technique-intensive manufactured goods was up and down to certain degrees.The volatility of ITT is greater than it of NBTT after the entry of China into WTO, showing that the expansion of export quantity slowed down the unsteady international trade.The SFTT of industry manufactured goods fluctuated with an improvement. The DFTT to America of industry manufactured goods changed significantly at 1998, so did it to Japan.The contribution of primary and agriculture goods was limited to the improvement of the terms of trade, and the NBTT deteriorated in the long run, which had been proved in developing countries for years.On the other hand, the improvement of the terms of trade in industry manufactured goods and capital-or-technique-intensive manufactured goods resulted in it of Zhejiang. Comparatively, the expansion of quantity was the most essential factor of the improvement of the terms of trade, which was significant in it of labor-intensive goods.The Asian Financial Crisis of 1998 was the point between rapid growth and steady increase in Zhejiang's international trade, based on both the long-term trend and volatility analysis. Furthermore, both of them did affect growth and welfare of the economy. The major cause of the volatility came from the terms of trade of capital-or-technique-intensive manufactured goods, whereas it of primary goods was a minor one.It is quite opposite to the traditional view of Zhejiang's price advantage that the quantity expansion has helped a lot in the development of international trade.The influencing factors were examined on the changes of Zhejiang's terms of trade by Principle Components Analysis. The result revealed that it is the nominal exchange rate, economic development, domestic market scale, infrastructure expenditure and people's life level that influence the terms of trade. On the other hand, the effect is not obvious of foreign capital actually utilized and R&D expenditure.There has not been Immiserizing Growth in Zhejiang given the proof of the four preconditions, the change of the terms of trade and the competitions of internationaltrade.We could point out the problems existing in the development of Zhejiang's international trade, and provide several more advisable and effective policies, based on both theoretical and empirical analysis of the trend and influencing factors of the terms of trade, to reinforce the economy and the international trade of Zhejiang.